Goal-Setting

But beyond simply stating a truism—an organization is better off knowing what it’s trying to do—goal-setting as a strategic exercise is filled with multiple approaches and blind alleys.

At its worst, goal-setting is a time-consuming and frustrating exercise that can harm the firm and undermine the credibility of strategic planning in general. At its best, however, goal-setting can make an organization more efficient, staff more satisfied, and management’s job easier.

Management By Objectives

The first big trend in management theory—Management By Objectives (MBO)—was built on the insight that setting and achieving goals are the core activities of any organization. If an organization cannot set goals, or if the people within the organization aren’t pursuing those goals, I would suggest that the organization doesn’t actually exist—or, at least, that it has no reason to exist.

The idea of MBO was laid out in 1954, by Peter Drucker, in one of his seminal works, The Practice of Management. Although many management theories have been developed since, MBO can still be a useful tool—perhaps one of the most useful available in strategy.

It can be particularly relevant for large, complex, or dispersed businesses or organizations. In these firms, management cannot be hands-on, and the work of the firm will often be carried out by people who each have a high level of autonomy. In that situation, clarity about objectives, and holding people to account for achieving them, can become the core task of managers.

Typically, the “SMART goal” tool is used when a group—usually a group responsible for an area of strategy—is trying to write down agreed-upon actions to take to achieve goals. Often, they will discuss each goal, refining it until it meets all five of these criteria.

Using the SMART template to set and measure goals can be useful, especially in situations where goal-setting has been vague or unproductive.

Its drawback is that some crucial goals—especially aspirational or transformative goals, or goals emphasizing exploration—can’t always be boiled down to these five concrete criteria.

But the drawback rarely outweighs the benefits. A business—or any organization—with no SMART goals is unlikely to be productive. A business—or any organization—with only SMART goals is unlikely to be innovative.

Goals As Choices

One way of thinking about goal-setting is as a process of choosing. We can conveniently divide goals into “hard” and “soft”:

Hard Goals

profit

position

risk

growth

Soft Goals

management

employees

community

society

Soft goals aren’t easier to set or achieve than hard ones; often they’re much harder. A goal is typically called “hard” if can be readily turned into a specific number. It’s typically called “soft” if it focuses more on people.

Profit

A for-profit company that sets “profit” as its first goal for the next few years is looking to maximize short-term profits, and to achieve improvements in profit ratios in its financial statements.

Our company might choose this focus if we’re looking to sell the company, or if we want to build up cash to make acquisitions, or if we can’t think of any other goal that we believe to be more important at this time.

If we’re a not-for-profit company, we’re barred by law from making profitability our goal. However, if our non-profit has experienced recent operating deficits recently, or has a debt we believe we need to retire, we might decide that our first priority is to have an operating surplus every year for the next number of years.

Position

Unless they are a monopoly its products have no substitutes, a company’s products are ranked by its customers in comparison to its rivals’ products or services. Sometimes, a company can decide that the most important thing it can do is shift that ranking position.

Perhaps we’ve done our research and know our product is thought of as a luxury good that only the wealthy can afford. We could choose to expand our product range, and capitalize on the prestige of our brand in a larger market.

Or perhaps we are considered a low-quality brand. We could take the steps necessary to move market perception up.

In these cases, we could decide that, at least for the next few years, making these position shifts is more important than profits or market share.

Risk

Traditionally, most firms are risk-averse. Sometimes, however, the most rational decision a company can make it to increase its risk.

In rare cases, it might even decide that the most important thing it can do is take more risk than anyone else in its industry. This choice is most common in start-ups and in companies who are near (or in) bankruptcy. In both cases, the company has nothing to lose. It can also be a wise choice for a company in a rapidly-transforming industry.

Growth

Some companies—Amazon, for example—prioritized growth above all other goals. Making growth a first priority means foregoing profits. At least so far, this goal has paid off well for Amazon in market share and capital valuation.

However, like “position” and “risk”, “growth” cannot be a permanent end-goal for a for-profit company. Eventually, that growth has to result in superior profits, or its shareholders will desert it.

Management

A company could choose to make management excellence its primary soft goal. In that case, we could expect them to be willing to pay a premium to recruit or retain executive talent. It might be willing to invest in advanced education of emerging leaders on its staff, being groomed for senior management. It might place a particular emphasis on mentoring.

Employees

On the other hand, a company may choose to make employees a primary goal. In that case, we should expect that management compensation and development would be a lower priority than recruiting, training, and motivating front-line staff. We might expect an emphasis on employee profit-sharing, and perhaps even a marketing campaign centred on the dedication of its staff.

Community

Some companies believe that the primary determinate of their success is the enthusiastic support of the community (or communities) in which they operate.

If their actions match their beliefs, we can expect to see them exceed their competitors in their support of community activities, and to sacrifice short-term profits for the sake of long term community goodwill.

Many—perhaps most—non-profits are primarily focused on having an effect on their community, which will include those they serve, but often extends beyond them.

Society

A few for-profit companies make their primary soft goal a change in society, attempting to extend their influence beyond shareholders, employees, and customers. Facebook, for example, wants to change how people communicate. LinkedIn wants to change how people find work. Kickstarter wants to change how ideas are funded.

Non-profits are more likely to set their sights on changing their society than for-profits. The difference between focusing on affecting a community and affecting a society is primarily a difference in geographic ambition.

And it probably goes without saying but, even though its called a soft goal, a firm making altering society its primary goal is taking the most difficult course available to it.

Using Goals As Choices in Strategic Planning

In discussing its strategy for the next few years, a company could do well to pursue one hard goal and one soft goal above all others. So it may, for example, decide to focus primarily on the position it’s products have in the marketplace, and on raising its profile in the community as an engaged and valuable business.

Goals & The Product Cycle

Different goals can more or less sense based on the life cycle of the company’s primary products. If the company is working in a new or emerging market, position or growth may be the best possible goals. If the market is mature or in decline, maximizing profits may be the best possible approach.

Goals & Competitive Advantage

To be useful, the choice of one or two dominating goals must be easy to communicate to everyone in the organization. If your people don’t know your firm’s dominating goal, there is little chance they will pursue it. After all the discussions and decision making, you’ll need to boil your goal or goals down to a single, compelling sentence:

“No-one ever had to apologize for quality.”

“For the next five years, we will take more risks than anyone else.”

“We will not be undersold.”

Not every goal is a strategic goal. It has to be important enough that achieving can be expected to significantly improve the overall health or success of the firm.

SMART goals can help us clarify our goals. Management By Objective can help our firm execute our goals in a coordinated way. Neither can tell us which goals to choose.

Using goal-setting in strategy is, in many ways, a variant of Generic Strategy tools. In order to be successful, it isn’t necessary to be the only business in an industry with any one particular goal, but it is necessary to execute that goal better than anyone else.